Monetary Policy And Bank Distress: An Integrated Micro-Macro Approach

Evidence on the interdependency between monetary policy and the state of the banking system is scarce. The authors suggest an integrated micro-macro approach with two core virtues. First, they measure the probability of bank distress directly at the bank level. Second, they integrate a microeconomic hazard model for bank distress and a standard macroeconomic model. The advantage of this approach is to incorporate micro information, to allow for non-linearities and to permit general feedback effects between bank distress and the real economy. They base the analysis on German bank and macro data between 1995 and 2004.